On Thursday, Loop Capital adjusted its outlook on Trex Company Inc. (NYSE:TREX) shares, a leading manufacturer of composite decking and railing, by reducing its price target to $95 from $110 while maintaining a Buy rating.
The revision follows a composite decking survey that indicated mixed results, with near-term demand strength being offset by a deceleration in bidding activity during the quarter.
The firm believes that Trex will likely need to raise its fiscal year 2024 revenue forecast following an expected second quarter beat. Trex's original guidance had accounted for a slowdown in demand, which the survey did not support.
Additionally, Loop Capital anticipates a modest increase to the company's EBITDA margin guidance for FY24, due to strong sell-through demand trends leading to improved leverage at its manufacturing facilities.
Despite the positive adjustments to the second quarter and full-year 2024 forecasts based on robust near-term demand fundamentals, the survey indicated a slowdown in bidding activity.
Consequently, the firm modestly lowered its FY25 residential revenue expectations, anticipating that higher interest rates and declining consumer sentiment may begin to impact bidding activity during the quarter.
The firm also slightly reduced its FY25 margin expansion assumptions due to increased capital expenditures related to capacity additions at Trex's new facility in Little Rock, Arkansas.
While acknowledging Trex's solid long-term demand prospects driven by material conversion share gains, low financing dependency, and growth in adjacent categories, Loop Capital expressed caution regarding the company's ability to achieve pre-pandemic growth rates without a significant rebound in large ticket repair and remodel (R&R) demand.
Loop Capital's revised EBITDA forecasts for Trex are now $129 million for the second quarter of 2024 (up $5 million), $382 million for FY24 (up $5 million), and $417 million for FY25 (down $5 million). The new $95 price target is based on a 25x multiple of the firm's estimated FY25 EBITDA.
In other recent news, Trex Company, a leading manufacturer of wood-alternative decking and railing products, has made headlines with robust first-quarter sales reaching $374 million, marking a significant 57% increase year-over-year. This growth can largely be attributed to high demand for Trex branded products and successful premium product launches.
The company's projections for 2024 revenues remain between $1.215 and $1.235 billion, reflecting an 11-13% year-over-year increase. In addition, Trex anticipates an adjusted EBITDA margin for 2024 in the range of 30.0-30.5%, marking an improvement from the previous year.
In light of these results, JPMorgan (NYSE:JPM) upgraded Trex's price target to $95.00 from the previous $93.00, while maintaining a Neutral rating. The firm has also slightly increased its operating EPS estimates for 2024 and 2025 to $2.26 and $2.65, respectively. Meanwhile, Baird adjusted its price target for Trex, reducing it from $105.00 to $88.00 while also maintaining a Neutral rating.
Despite the differing price targets, both firms acknowledge Trex's strong market position and future growth prospects. These are recent developments that reflect Trex's strong leadership position and superior margins within its sector.
InvestingPro Insights
Amidst the mixed signals from Loop Capital's survey on Trex Company Inc., the latest data from InvestingPro underscores some key financial metrics that investors should consider. Trex's market capitalization stands at a robust $8.13 billion, reflecting a significant player in the composite decking industry. The company's P/E ratio, as of the last twelve months leading up to Q1 2024, is 32.09, which suggests that the stock is trading at a premium relative to its earnings. However, the PEG ratio of 0.47 indicates that the company's earnings growth could justify this earnings multiple. Importantly, Trex has exhibited a strong revenue growth of 22.3% in the last twelve months, pointing towards a solid financial performance.
InvestingPro Tips highlight that Trex has a perfect Piotroski Score of 9, indicating strong financial health, and despite its high earnings multiple, it is trading at a low P/E ratio relative to near-term earnings growth. Moreover, analysts have a positive outlook, predicting profitability for the current year, which aligns with the strong revenue growth figures. For investors seeking more in-depth analysis and additional tips, they can explore further by using the special coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at InvestingPro. With 14 additional InvestingPro Tips available, there's a wealth of information to help make informed investment decisions.
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